In the current hyperactive pricing environment, many top retailers have adopted price matching guarantees as their first line of defense. Customers in brick-and-mortar stores who find cheaper online prices can often get those prices honored by a store manager. Some retailers even offer a price match after the fact – if a customer shows up within a week with proof of a better deal.
Wanting to avoid being undercut by even a few pennies, many major retailers continue to expand their price matching policies and proudly announce each new revision in their advertising.
Price matching in any form is universally viewed as a victory for consumers, but for retailers, it’s a race to the bottom. To explore why, we talked with retail analyst Kevin Sterneckert, a former vice president of research for Gartner and an industry expert on Pricing Intelligence.
According to Sterneckert, retailers who try to compete with Amazon on price “are showing up to a gun fight with a pixie stick.”
Q: How far ahead is Amazon in the area of Pricing Intelligence?
KS: Let’s put technology aside for a minute. I would say that they are six to nine months ahead in strategic thinking. It’s going to take education and pain for another six to nine months before leading retailers begin to say, “We’ve got to do something different.” Then it’s going to take another six to 12 months to install the technology that’s going to lead to a more competitive set of capabilities. I’m not talking about matching Amazon. I’m talking about going to a gunfight with a gun – and today, people are showing up to a gunfight with a pixie stick.
Q: Which retailers are aggressively trying to catch up?
KS: The largest companies with the most direct competitive impact are certainly working aggressively. Walmart, Staples, Target, Macy’s and Tesco are among those working aggressively. They recognize the threat, but today they are taking more of a reactionary position than they are taking a strategic proactive position. Most of these companies are still in very early stages. They are thinking rules-based, they are thinking looking at the competitor, looking at their volume, understanding elasticity and then matching prices on the elastic items. Instead of being a price leader – and that really is what Amazon has done.
Q: Which retailers are far behind?
KS: The bulk of other retailers are far behind. And it’s not a technology race. It’s a strategic-thinking race. Many retailers get and understand optimizing prices for brick and mortar, yet they have for some reason decided that the right strategy is to match their online price with their in-store price. If that’s your strategy, it is a very flawed strategy.
To read more of our conversation with Sterneckert, download a complimentary copy of our ebook, “Pricing Intelligence 2.0: The Essential Guide to Price Intelligence and Dynamic Pricing”. It’s the definitive guide for retailers and brands on how to avoid the price matching trap.
Mihir Kittur is a Co-founder and Chief Innovation Officer at Ugam. He oversees sales, marketing and innovation and works with leading retailers and brands with insights and analytics solutions around their category decisions to improve business performance.